Ireland Pensions Update 

What is in store for Pensions in 2024?  As the Pensions Industry continues to undergo significant changes, we have set out below a snapshot of many of the pensions and benefits issues that sponsoring employers, trustees and members should be aware of in the year ahead.  

- Authority engagement and audit findings report for 2023

- Supervisory review process (SRP)

- IORP II

- Industry developments

Change to calculation of fees for occupational pension schemes

From 1 January 2024, where a scheme has 20 or more participating employers on 31 December in the preceding year of account, fees must be calculated based on the number of active members in the scheme as at 31 December in the preceding year of account.   This will typically impact Master Trust arrangements only. 

Pensions Authority engagement and Audit findings Report for 2023

The Authority shared their observations on the main findings identified after their engagement and audit activities completed in 2023.  The Authority expects trustees to carefully consider the Authority’s findings and use them as a basis for evaluating their own practices and making improvements where necessary.  The Authority made a number of comments on Master Trust schemes relating to support for retiring members and engagement with sponsoring employers which apply equally to all pension schemes as follows:

· Support for retiring members

“The Authority expects trustees boards to consider what forms of communication and information will best support their membership in making informed retirement related decisions.  The Authority will keep this matter under review and expects to provide further information on its expectations in this area in 2024.”

· Engagement with employers

The Authority found there was varying levels of engagement between trustees and employers and the Authority “reminds trustee boards that they must consider communications and engagement with employers as well as members, and the type and frequency of these communications must be documented in a formal written policy.”

· DB scheme engagement

The Authority was satisfied that the trustee boards it met with had an effective process of governance in place.  The Authority noted in its commentary that it expects an evidence-based view of the strength of the sponsor’s covenant to the scheme to form a key component of the trustees’ own-risk assessment.

Mercer can support trustees in these matters. Please contact us for further information. 

Supervisory review process (SRP)

The Authority advised that the SRP programme will commence in 2024 focusing on master trusts and large defined contribution and defined benefit schemes.  The SRP will cover strategies, processes and reporting procedures established by trustees and the Authority will assess the scheme’s system of governances and how risks are monitored and managed.

Trustees should prepare themselves for this new regulatory supervision. 

Mercer can assist trustees in relation to the new regulatory supervision. Please contact us for further information. 

Annual Compliance Statement (“ACS”)

Section 26T of the Pensions Act requires trustees to prepare an ACS not later than 31 January each year for the purposes of prudential supervision.  The Pensions Authority will carry out sample checks and audits of trustee compliance with this obligation as part of its ongoing supervisory activity.  Failure to prepare an ACS may amount to an offence liable to prosecution.

Own Risk Assessment

Trustees will need to prepare to meet the deadline to complete the Own Risk Assessment of the Scheme in April this year.  The Authority in its guidance reminded trustees that the ORA is one of their most important responsibilities and they must dedicate sufficient time and attention to ensuring it is fit for purposes.

The Authority also noted that the “overall purpose is to ensure members’ benefits are well protected and that the scheme delivers good member outcomes”.

Critical Reviews

Trustees will need to complete their critical reviews of their Administrator and Investment Managers by 22^nd April 2024. 

Trustees will need to discuss and agree their approach to the critical review process and Mercer can support trustees with these “in depth reviews”.

Policy Reviews

Trustees will need to agree a timeframe to complete the triennial review of the policies established by the trustees.

Trustee Meetings

Trustees need to ensure that agendas, meeting papers and minutes are prepared in accordance with the requirements of the Code and the trustee meeting policy.  A chairperson and scheme secretary must be appointed and a sufficient number of meetings to maintain effective control and oversight must take place.  Decisions need to be documented and adequate records must be kept.

Pension Benefit Statements

Pension Benefit Statements must be issued to active as well as deferred members in 2024.  The Pension Benefit Statements must contain prescribed information.

Electronic Communications

Trustees are permitted in accordance with the Pensions Act to provide information to members or beneficiaries using electronic methods.  Trustees must also comply with the Electronic Commerce Act, 2000 (the “ECA”).  The Pensions Authority have confirmed that trustees are responsible for deciding how they comply with the ECA and what type of consent is required from members to receive information electronically, i.e. active or passive consent.  The Pensions Authority have stated that trustees should have regard to the specific profile and experience of their own scheme membership when deciding what type of consent is most appropriate.

Disclosure Requirements

There are a number of new disclosure requirements which trustees must meet.  The Pensions Authority expects schemes to be actively working to achieve compliance with the new Regulations and reserves the right to take enforcement action.

Mercer offers scheme secretarial services which provides support in managing the additional governance requirements under IORP II as well as acting as a central conduit for scheme operations and playing a key part in delivering the scheme’s objectives.  Should you require further information on these services, please contact us

Review of the Standard Fund Threshold (SFT) Regime 

The SFT is the limit on the total capital value of tax-relieved pension benefits that an individual can draw down in his or her lifetime from all of that individual’s pension arrangements.  The SFT was introduced in December 2005 and is currently €2million (since 2014).

The review will consider the impact of any change to the SFT on the overall tax expenditure associated with pension provision and its associated distribution, and the need for equity in treatment across taxpayer groups and between public and private sector workers and will take account of the Commission on Taxation’s recommendation that the SFT limit be set at “an appropriate and fair level of estimated retirement income. 

The first step in the examination is a public consultation which runs until 26 January 2024.  The results of the examination will be presented to the Minister for Finance by summer 2024 for consideration.

Auto-enrolment (AE)

The new AE bill is now expected in Q1 2024 and it is anticipated that the Bill will provide an important indication of AE obligations and timeframes.  It is currently expected that the AE scheme will be up and running in late 2024.

How might AE affect employers that already provide a pension scheme to employees?

All private sector employers must comply with AE.  Employers will have to ensure any employees aged between 23 and 60 years of age earning above €20,000 are automatically included into pension saving either via a central system operated by the State or through an occupational pension scheme. These age ranges and salary ranges were included in the original AE proposal but are yet to be decided upon.  The central AE system is intended to exist alongside, rather than replace, existing pension schemes. However, employers will have a choice to make – they can either enrol in-scope employees into the central AE system or they can use their existing (or a new) occupational pension scheme or master trust. If they use a pension scheme, that scheme will have to meet certain minimum AE standards.

Mercer’s view is that meeting minimum AE standards using an employer’s existing scheme will almost certainly be the least disruptive option. Providing employees with access to both systems will likely lead to greater complexity and confusion, requiring additional time and effort – and increased costs.

What should employers do now?

It is important for employers to prepare for what’s coming. This means understanding what AE might mean for them, including the potential operational challenges, cost implications over time and how their pension scheme could be affected. Undertaking a high-level gap and cost analysis will provide an important indication of what employers can expect.

Mercer can support employers to understand the implications of AE on their business. Please contact us for further information.

State Pension

The Government has reiterated its plans to introduce key reforms to employment rights and the State Pension. The Social Welfare (Miscellaneous Provisions) Act 2023 introduced reforms with effect from 1 January 2024. The Government is introducing these reforms to address increasing longevity that results in more people availing of State pensions for longer.

The measures include:

• State Pension age to remain at 66
• New voluntary flexible option introduced to those reaching 66 on or after 1 January 2024 allowing employees the flexibility to defer drawing down their State Pension up to age 70.  Where the State Pension is deferred, PRSI contributions are payable by the employer and employer in return for a higher State Pension (subject to maximum limits)
• A move to a “total contributions approach” in relation to the calculation of individual pension entitlements on a phased basis over 10 years starting in January 2025.

The previously flagged legal right for an employee to remain in service until age 66, irrespective of what is stated in their employment contract is not part of the Social Welfare (Miscellaneous Provisions) Act 2023 but is expected soon.

The long-term sustainability of State Pension system to be addressed through gradual, incremental increases in social insurance rates.  The first PRSI increase is 0.1% to take effect from October 2024.

What should employers do now?

Longer working and flexible retirement may become a more significant issue for employers from January 2024 and employers will need to consider the implications of these reforms on their business. Employers should ensure that they have an appropriate approach or policy in place to address flexible retirement. They should consult with trustees of their pension scheme to assess whether flexible options will impact on the design of the retirement and death benefits being provided and whether amendments to the rules of the scheme will be required.

Mercer can support employers to understand the implications of the State’s new flexible options and the impact on their business. Please contact us for further information.

Finance (No.2) Act, 2023

The Finance (No. 2) Act 2023 was enacted on 18 December 2023 and contained the following provisions on pensions:

• Revenue will no longer approve Retirement Annuity Contracts
• The upper age limit of 75 years for PRSA holders to make initial withdrawals from their PRSAs has been removed.  

Digital Operational Resilience Act (DORA)

DORA was adopted by the European Parliament and came into force on 16 January 2023. It will be directly effective from 17 January 2025. It applies to all “financial institutions,” which includes occupational pension schemes with 15 or more members.

Its currently envisaged that IORPs with less than 15 members are excluded and IORPs with less than 100 members will be subject to a “simplified” risk management framework.

DORA imposes uniform requirements on financial institutions relating to the security of network and information systems and creates a regulatory framework for digital operational resilience whereby financial entities will need to make sure they can withstand, respond to and recover from IT disruptions and threats.

The first draft technical standards were published on 17 January 2024 and have been submitted to the European Commission who will start working on their review with the objective to adopt the first standards in the coming months.

It is expected that the Authority will issue guidance on DORA and pension schemes in early 2024. Trustees should engage with their advisors and put in place a plan for meeting these DORA requirements by 17 January 2025.